Due to are weak economy and lack of employment more consumers than ever are finding themselves in positions where they can no longer afford to pay their monthly debt. Credit ratings are taking a dive, unemployment benefits are simply starting to run out, and foreclosures are still at record highs. Many consumers that have had no problems managing their expenses in the past have found themselves facing bills that are not affordable.
If you are among them, you need to realize that little things in life are truly permanent (including debt and credit problems). Having knowledge of the legal limitations on reporting and attempting to collect a debt can help ease the pain while our economy gets back on its feet.
One of the most common questions borrowers ask when facing debt problems is, “How long will a debt remain on my credit report?”
Well, federal law requires that after a period of seven years credit bureaus will have to remove negative information from your credit report. This seven year mark typically starts when a debt has gone 180 days past due. However, there are some exceptions to this. a bankruptcy can remain on an individuals credit rating for up to ten years, while other debts, such as tax liens that have gone unpaid, can remain on a borrower’s credit score indefinitely.
Another aspect you will want to know is the statute of limitations on debt. This is the certain period of time that creditors have to file a suit in court to collect the amount owed; in some states this could be anywhere from three to six years. Unless the past due amount has been discharged in bankruptcy or forgiven by the creditor, the borrower will still be liable for the amount owed. Keep in mind that creditors may still try to collect the debt for years after the account has been charged off, but they cannot take the case to court or file a suit once the statute of limitations has expired.
How long will this be? Depends on the consumer’s situation.
You will find that the statute of limitations will typically vary from state to state and by also be the certain type of debt owed. Various states will often have various requirements for oral and written contracts, as well as close-ed and open-end contracts, which not always, but many times include credit card accounts.
For example, the state of California statute of limitations is quite short on most debts compared to some other states. This includes only two years for oral agreements and four years for written agreements, promissory notes, and credit card accounts. On the other hand, states such as Kentucky will allow creditors to file a suit for up to fifteen years after the last payment on a written contract, and only five years for other debts such as credit cards. A local financial attorney can give you specific details that are relevant to your state’s laws.
Below are other key factors you may want to keep in mind.
- Two states may treat the same debt differently. Not many people are aware that different states may treat the same debt differently when it comes to statute of limitations. For example, a credit card account may be referred to as an open-ended debt in one state, and in another it may be considered a written contract. The best way to verify this information would be to research your state laws or consult with a local real estate attorney.
- You may be able to restart the timeline. Typically, the timeline for statute of limitations begins on the date of last activity on an account. You should be able to verify the date of last activity on your credit report. For example, on a credit card debt, this should be the last purchased charged or the last time you made a payment on the account. In certain states, attempting to make a payment on a charged off debt, or agreeing to some sort of repayment plan, may help you extend the statute of limitations or possibly even restart the timeline all together.
- Some creditors will still attempt to file a suit even after the statute of limitations has expired. Collection agencies that attempt to sue a consumer (or threaten filing suit) after the statute of limitations has expired is violating the Fair Debt Collection Practices Act (FDCPA). However, even though this is not allowed by law, in some cases it still happens. To help prevent a suit being won against you, you will need to show the courts that they can no longer file because the statute of limitations has run out. Keep in mind that the FDCPA applies to third party collection agencies and attorneys. However, in many states it is also illegal for the creditor to pursue a lawsuit once the statute of limitations has expired.
- Certain debts may still exist even after the creditor is no longer legally allowed to sue. Some people believe that just because the statute of limitations has run out that the debt has been eliminated. Although the creditor no longer has the ability to file a suit in court, there are still other methods of collections that may still take place, such as collections calls and letters. No legitimate debt is truly eliminated unless it has been paid off or settled in bankruptcy court.
- The seven-year timeline for debts to be erased cannot be legally extended by collectors. It is illegal for a creditor to extend the statute of limitations by giving a debt a new delinquency date. The Federal Trade commission (FTC) has shut down various collection firms for continually re-aging debts so they can file suit.
About Evan Bedard
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Mr. Bddard is mistaken in his definition of statute of limitations. Statute of limitations is a legal defense. A creditor can file a lawsuit and win beyond the statute of limitations if the debtor does not answer the complaint or fails to use statute of limitations as a defense. The majority of consumer judgments in the United States are default judgments where the debtor either failed to file an answer or failed to appear at the trial date. The majority of these default judgments were for debts that had exceeded the states staute of limitations.
The FDCPA, Fair Debt Collection Practices Act applies to third party collectors and not creditors. A creditor collecting it’s own debt is not violating the FDCPA by filing a lawsuit beyond the statute of limitations.
Articles such as Mr. Bedard’s with incorrect information is not beneficial to the consumer and gives legitimate creditors who collect their own debts a less than reputable impression.
Debtchaser- As mentioned above, creditors may still attempt to file a suit even after the statue of limitations has expired. In order for the debtor to win a case in court they will need to point out the fact that the statue of limitations has expired. It is true that the FDCPA applies to third parties and attorneys collecting the debt, but many states will also forbid the creditor from filing a suit against the debtor after the statute of limitations has expired. This law may vary from state to state. Therefore, I do not see how the article lists inaccurate information like you had stated.